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Vera Kobalia: Diversification in Georgia is Everywhere

By Konstantin Ameliushkin

Minister of Economy and Stable Development of Georgia Vera Kobalia considers economic relations of Lithuania and Georgia to be insufficient. She thinks that more can be expected, and that the main problems rest within the sphere of goods transportation and absence of direct communication between the two states. During an interview for DELFI she underlined that due to the embargo imposed by Russia in 2006 on Georgian goods, her country has only benefited, and entrance of Russia into WTO shall positively influence Georgian economy. In course of her visit to Vilnius the youngest minister in the team of Georgian President Mikhail Saakashvili Vera Kobalia answered the questions of DELFI, shared with her view on economic cooperation between Lithuania and Georgia, main problems and project of Georgian economy, talked about the opinion of Tbilisi on entrance of Russia into WTO and on the Customs Union of Russia, Kazakhstan and Belarus.

– Talking about relations between Georgia and Lithuania the case is mainly about policy. Which is the economic part within the communication of the two states?

- On November 22nd we had a meeting with your Economy Minister and discussed the ways to increase trade between the two states. We often talk about political relations of our states and they are really strong as well as the relations at human level. Trade level grows annually but this is yet not the level we can expect from our states and their economies. We export agricultural goods, mineral water and wine. From Lithuania we receive not many products.

It’s hard to call trade balance satisfactory. I always say that a state should create maximum possibilities for business promotion. I think that it would be interesting to establish working groups between the two ministries and to observe, which problems and obstacles exist within trade development. One of the problems is transportation and related expenses. The second is direct flights between the two states. Georgia has no national airlines and our policy includes maximum attraction of foreign airlines. The third one is investments. In Georgia there is a number of investments, but much less are Georgian investments in Lithuania. Till 2007 in Georgia it was easy to attract investments due to certain reforms. After economic and financial crisis each country fights for dollar. That is why in Georgia we schedule everything up to particular financial details.

– As known, the issue of logistic possibilities also bothers Lithuania and Georgia. Would you please comment on this?

– We signed a memorandum with Lithuania on the project of “Viking” train. Now it is at the initial stage, but we believe that the wider diversification options for new directions the better this shall help business development. “Viking” project by correct development and extension can be quite attractive for the projects member-states. As for transport…. Now a new railway Baku-Tbilisi-Kars is under construction, a new line that should connect Central Asia with Europe.

Transport is a great part of our economy, that is why we invest into it maximum, always working under transporting infrastructure. I know that this is also urgent in Lithuania. As for definite projects then it would be more fascinating to observe bigger projects between Lithuania and Georgia, and the states can assist promoting this business sector.

– Talking about the Customs Union (CU) of Russia, Kazakhstan and Belarus, Georgia has good relations with two CU states, as for Russia then it’s hard to call them normal...

– Georgia has good relations with all neighbors, except for one. We have nice trade turnover with Kazakhstan, there are pretty much investments from this country. We export a big number of cars. Curiously enough but it is cars export that possesses the highest indexes in Georgia. As for the Customs Union, then we should observe its operation. We thought that after the signing of the CU establishment treaty cars export to Kazakhstan shall reduce. However, it didn’t happen, and investments from Kazakhstan to Georgia still enlarge. So everything depends on business relations with the states included into this Union. Considering from the viewpoint of trade, transport and cargo shipment, we have a program TRASEKA, which includes states located along the so-called silk way, connecting Europe, Caucasus and Asia. We are trying to set common tariffs, opportunities to establish competitive trade way. Georgia is extremely involved into European, western direction.

– You have mentioned Russia and Kazakhstan. It’s known the Georgian authorities at political level have contacts with Belarusian authorities. Is there any economic ground for the contacts of Georgian authorities with Belarus?

- Within economy the turnover is very low, there is even nothing to talk about. We have other programs that are out of economic projects.

– Regarding cargo shipment is it preferable for Georgia to go around the territory of the Customs Union or along its territory?

– I guess you have already answered the question yourself.

- Not that long ago Georgia has agreed on entrance of Russia into the World Trade Organization. What does the entrance of Russia into WTO mean for the economy of Georgia?

– The process of talks for our two states took pretty much time. The problem was so simple that they were looking for something else to add. For us it was urgent for the customs within the borders of the two states were transparent. These are the rules to be followed by all the states entering the WTO without exceptions. In result, the decision was that this shall be controlled by the third party. Since 2006 embargo was imposed to import Georgian agricultural goods into Russia. And no matter how paradoxic it is, this was of great help for us, as it let us to diversify the ways of these goods delivery. In 2006 Georgia was said: your goods are of low quality. And I was pleased when some time ago during the biggest wine forum, where 8000 companies participated, Grand Prix was awarded to Georgian wine produced exactly in 2006. After imposed embargo towards Georgian manufacturer, first it was very hard, as Russia was the biggest export market for Georgian goods. The market was closed and companies started searching for new markets: Europe, Asia, and Near East.

It turned out that within these directions, products are demanded to be of higher quality. In this respect, the quality of goods has improved, and the price increased. Now 20% of our export goes to the EU states, 10% – to the USA, than Asia and so on. Consequently we are able not to depend from the market of one country. This year we exported 15 million bottles of wine, and considering profit in USD it appeared to exceed 50 million bottles exported to Russia in 2005. Now when Russia according to the WTO rules shall be forced to withdraw embargo, I hope that our companies shall not depend of only from one Russian market.

– The issue of energy bothers Lithuania, as well as Georgia, however Georgia has other neighbors – Iran, Azerbaijan, etc, not only Russia.

– Georgia is the country of hydro-resources. We have the second biggest hydro-energy development options after Norway. The difference is that we have used only 18% of our potential. We do not export energy to Iran. At the moment we export electric power to neighbor states – Russia and Turkey. Turkey now is a very attractive market in this view, and at the moment we are laying the second line of power transmission between Georgia and Turkey. Hydro power plants are being constructed by private (Korean, Czech, European) companies to export electric power to Turkey. The same is with gas. When in due time Russia shut off gas for us, we realized that we have to look for other ways, to become independent from one country.

Gas pipelines lie along Georgia and under the treaties we gain 10% of gas free of charge. We have a very beneficial treaty with Azerbaijan; we also receive gas from Turkmenistan. All these together make gas in Georgia one of the cheapest in the region. The same is for electric power, and this is considering that in 1990-s our country was without light once again because it depended from one country. In general the word diversification in Georgia is implemented everywhere. For us it is vitally important for investments to come from different countries. It’s even hard for me to answer where do these investments come from – these are Great Britain, USA, UAE, EU, Turkey, etc.

– Free Trade Treaty is not yet signed with the EU. How do you assess competitive ability of Georgia in this direction?

– The start of negotiations on this treaty is very important for us. Due to too liberal (in comparison with European) economic policy of Georgia we had to work hard in order to find some mean. This shall grant our country new market options, it shall become a powerful impulse for Georgian economy development. But I don’t think that after conclusion of this treaty Europe shall be the only direction for our business. Except for that, this shall not influence Europe much, as manufacture in Georgia is much less than in other states. We can be competitive within certain industries, particularly this refers to agricultural goods, but their quantity is limited.